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Passage Back To India (Int'l Edition)

July 02, 1995

International -- Cover Story

PASSAGE BACK TO INDIA (int'l edition)

Raj Bagri started his career as a file clerk in a metals company in Calcutta. Thirty-six years after emigrating to Britain, Bagri is chairman of the London Metal Exchange and one of the country's 200 wealthiest people, with an estimated net worth of about $100 million. Bagri, also chairman of London-based Metdist Ltd., supplies India with 40% of its copper imports. In his latest venture, he plans to build a $600 million copper-smelting plant in western India in a joint venture with Mitsubishi Materials Corp., the largest such facility in that country. "I don't fly the ethnic flag, but I have an attachment to India," Bagri says.

After years of building their fortunes elsewhere, Indian emigres are returning to become major forces in their mother country. Called nonresident Indians, they have been enormously successful in the U.S., Britain, Hong Kong, Southeast Asia, South Africa, and the Persian Gulf. Many have amassed spectacular wealth. Although overseas Indians number only about 10 million, their combined annual income is roughly $340 billion. That's equivalent to the GDP of the entire Indian nation of 900 million, says Dubai-based Praveen Suri, Standard Chartered Bank's global head for nonresident Indian business.

These Indians are starting to bring back not only money but technology, marketing knowhow, and financial expertise. Well-versed in the ways of Western business, they know the potential riches are vast in a country with a middle class numbering in the hundreds of millions. Their return could emerge as a powerful tool in reshaping India's economy. "This will push India toward new economic heights," says Daniel M. Truchi, managing director-Asia for Credit Lyonnais private banking.

Much of the credit for the phenomenon goes to the government of Prime Minister P.V. Narasimha Rao. India's economy is growing by 5.5% a year, and the government's liberalization policies have lured multinationals such as General Electric Co. and Unilever. Rao's government has pushed hard to get overseas Indians to invest by opening once closed sectors to them and by allowing them to repatriate funds more easily.

For New Delhi, the emigres are especially important now that political jitters have led many foreign investors to have second thoughts. Opposition Hindu parties that have swept into office in recent local elections have taken a hard line on foreign investment, including opposition to Enron's $2.9 million power project in the state of Maharashtra. Local politicians, however, have fewer objections to investments from Indians living abroad.

SAVVY DEALMAKERS. To some degree, offshore Indians are following in the footsteps of overseas Chinese. Although their numbers are far smaller, the Indians believe they have unique qualities that will help them turn a profit quicker than most foreign investors in India. Similarly, expatriate Indians usually have strong family connections, a good understanding of local customs, and the patience and savvy needed to make deals work.

Indians abroad are by no means a monolithic group. Many in Asia are traders who built empires up from scratch. The Middle East has been a magnet for blue-collar Indians seeking jobs in construction and industry. The 1 million Indians in the U.S. are generally professionals who received advanced degrees at American universities and moved on to well-paying jobs, many with multinationals. Another 1 million live in Britain, including some of the diaspora's wealthiest families.

What they bring back with them to India also varies. Since they are not allowed to buy property in the Middle East, investors in that region are parking hefty sums in India's real estate market. In Singapore, where Indians make up 7% of the population, they often serve as middlemen leading the way for companies to make direct investments in India.

By contrast, U.S. emigres often return as heads of operations for such companies as GE Capital, McKinsey, AT&T, and Morgan Stanley. They often end up explaining Indians and Americans to each other. "My role is to provide a cultural interpretation," says Kartar Singh, senior vice-president of Cogentrix Inc. in Charlotte, N.C. Singh now spends much of his time in India, helping Cogentrix build a $1.5 billion coal-burning power plant in the southern city of Mangalore.

Many American-based Indians are also working to strengthen India's finance and technology industries. Raghuveer Mendu is the co-founder of a venture-capital firm, Dynam Venture East, that has raised $9 million for investment in industries such as information technology, health care, agro-products, and engineering goods. Despite government restrictions in the past, "the entrepreneurial spirit was always there," says Mendu, a 37-year-old native of Hyderabad in southern India who now lives in Los Angeles. The recent economic reforms have unshackled that drive, he says, and created a demand for venture capital. "The need for seed financing can now be met by money pumped from abroad."

Many veterans of Silicon Valley have headed to India. One example is Anil Kapuria, a computer scientist and electrical engineer from New Delhi, who came to the U.S. in 1975 and worked for Northern Telecom and Tandem. He founded Silicon Valley Technology in 1987, and it has become the second-largest exporter of computer hardware products out of India, selling motherboards, memory boards, graphic boards, networking, and other add-on products to companies such as Compaq Computer and Texas Instruments.

The track record of emigres overall is impressive. In the U.S., the average Indian American's income is $48,000, higher than any other foreign-born group. Indians own 40% of the motels in the U.S., and 20,000 are doctors. In Hong Kong, where Indians make up only 0.5% of the population, they account for nearly 10% of the territory's external trade. Collectively, overseas Indians save $50 billion a year and own $100 billion in real estate. As a group, they are the third-largest investors in India, led only by the U.S. and Britain (charts).

Aside from money, they are taking ideas home. In 1993, Soumitra Shankar Das returned to India and was struck by its disorganized retail system. So he created Dee's Home Shopping Network, where TV hostesses offer Indian consumers household goods such as knife sets and toilet-paper holders. "I had the experience of studying the best distribution system in the world--the U.S.," he says, adding that he's selling $6,500 a day in goods. Other returning Indians have introduced the concept of executive searches and more sophisticated TV programming.

In general, Indians from abroad are a potent lobby for change, prodding officials at every opportunity to liberalize faster. "Associations keep coming here, articulating their desire to make the system more transparent," says D.R. Mehta, chairman of the Securities & Exchange Board of India.

AUTOMATIC APPROVAL. Responding to that pressure, the government is opening sectors exclusively to its progeny. Overseas Indians, for example, get automatic approval for most wholly owned ventures, while foreign companies can only hold a 51% stake. Some 5% to 10% of initial public offerings are reserved for overseas Indians, who can also own property, while foreigners cannot invest in anything other than their own offices or homes.

Nonresidents are so active in snapping up real estate in Bombay that they have helped push property prices to Tokyo levels. Tailored to those used to living in the West, New Delhi's Manhattan Apartmansions have a school, park, shopping complex, health club, and four-bedroom apartments that sell for $200,000. "The only thing Indian about them is the address," boast its sales brochures.

Like overseas Chinese, Indians have established networks based on shared religions or ethnicity. For instance, Sindhis who lived in what became Pakistan lost almost everything they owned in the 1947 partition of the subcontinent. Over time, they built profitable businesses in the Middle East, Africa, and Asia. Their informal financial network, where goods are traded on credit and trust, allows them to bypass commercial banks. "We've been selling to other Sindhis that we've known for a long time," says Raj Sital, a Hong Kong-born NRI who helps run his family's trading company. "You can be anywhere in the world, and you can get cash."

The Sindhis are spearheading an investment drive into India, led by the prominent London-based Hinduja family (page 37). They have created a Mauritius-based holding company called IndusInd International Holdings Ltd. (IIHL). Some 3,000 Sindhis from all over the world pitched in $50 million, with the Hindujas alone contributing 3%. The group includes IndusInd Bank, the first private bank to be formed since liberalization. Founded in April, 1994, it has $225 million in deposits, a little more than half of which comes from emigres. IIHL also runs a $161 million print-and-electronic-media project called IndusInd Media & Communications Ltd. It will launch a 32-channel cable network, produce TV programming, and acquire Indian movies.

The Hindujas have encountered their fair share of problems. Since their ventures tend to threaten the monopolies of domestic industrialists, the group still comes up against hurdles that have caused up to three years of delays for such efforts as the telecom deal. "There's still resistance from Indian businessmen to offshore Indians," says Sanjay G. Hinduja, group vice-president.

Despite points of friction, the Indian emigres are sometimes able to act as middlemen, bridging the gap between India and foreign investors. "I see our role as a conduit," says M. Chamaria, chairman of $500 million Agio Group, a trading firm with investments in energy, infrastructure, and real estate. His company is now lining up $600 million worth of projects in India, including a $100 million joint venture with St. Louis-based Protein Technologies International to produce soy protein. "Foreign companies feel more comfortable going in with someone like us [because] we know the language of both sides," he says.

Another impressive investment in the motherland comes from Singapore, where Parameswara Holdings has launched a $19 million fund as a way for Singapore investors to break into India. The fund mainly targets Indian infrastructure projects. It also has a 10% stake of Singapore investments in the $250 million Bangalore Information Technology Park, a government-led Singapore project. "The nonresident Indian label, the brand, gives you a quicker avenue to doing things in India," says Shabbir Hassanbhai, director of Parameswara.

But no offshore Indian expects it to be easy. Infrastructure is antiquated, power outages are common, and roads are primitive and chaotic. Corruption is rampant. Businessmen are quick to complain of shakedowns for such basic services as a telephone line. K. Sital, a top Indian business leader in Hong Kong, says it took him months to get a license to open a watch factory near Bombay--and even then, he had to grease some palms. Once he started producing, it took three weeks for his components to get through customs. "Nothing gets out for free," he complains. "You have to pay." Eventually, he gave up and shut the plant down. Now, he prefers to make his Indian investments together with other exiles: He is the largest individual shareholder in IndusInd Bank.

Yet for every frustrated overseas Indian, there are countless others charging in. Because there are so many trade, investment, and technology links spread over so many different parts of India, the impact of the returnee phenomenon could be profound. Their infusion of sorely needed capital will speed development in everything from telecommunications to shipping. Moreover, they're providing a new range of consumer services for the country's growing middle class. If India takes maximum advantage of its overseas Indian resources, it could handily forge crucial ties around the world that will boost the country's ability to become a regional, even a global, player.

To accomplish that, Indian government leaders will have to show their continued commitment to reform and liberalization. But many Indians abroad agree that their country is finally on the right path after decades of stagnation. "We feel the time is right for India to take off," says Lal Hardasani, chairman of the Indian Chamber of Commerce in Hong Kong. Having endured untold hardships overseas on their way to building vast personal fortunes, business leaders of the Indian diaspora aren't about to miss out on the opportunities back home.

Where the Overseas Indians Live

At least 10 million Indians live outside of their native land. They have widely differing skills and degrees of financial clout, and prefer to operate in areas where they have linguistic and ethnic links.